Jobs Slowdown Could Cost Obama the Election

I hate to ruin your weekend, but let’s be honest: Mitt Romney now has a good chance of being the next President.

How good is good? Your guess is worth as much as mine, but we both know that the likelihood of a Romney victory went up considerably this morning with the release of a shockingly bad jobs report. According to Intrade, an online betting site, it jumped six per cent, and is now more than forty per cent. Obama is still the favorite, but the gap is narrowing.

Yes, it’s just one month of job figures, and things could look better a month from today. But, from President Obama’s perspective, this was a truly horrible jobs report. Nobody, and I mean nobody, was expecting the May figure for growth in payrolls to come in as low as it did: sixty-nine thousand. And nobody was expecting the April figure—at a hundred and fifteen thousand already pretty anemic—to be slashed by nearly fifty thousand, to seventy-seven thousand.

With the May unemployment rate ticking up from 8.1 per cent to 8.2 per cent, the White House’s misery was virtually complete. Talk of a new recession is overblown, but the economy has clearly stalled at a very awkward moment for Obama. Between January and March, it created two hundred and twenty-six thousand jobs a month, according to the Labor Department’s payroll survey. In April and May, this figure fell by two thirds—to seventy-three thousand.

No wonder the Republicans are cock-a-hoop. “These jobs numbers are pathetic,” Eric Cantor, the House Majority Leader, said on CNBC this morning. “And I think it cries out now for us to try something new . The policies coming out of the Administration have not worked.”

That is the Romney argument, of course. “This week has seen a cascade of one bad piece of economic news after another,” Romney said in a statement. “Slowing GDP growth, plunging consumer confidence, an increase in unemployment claims, and now another dismal jobs report all stand as a harsh indictment of the President’s handling of the economy.”

From an economic point of view, this is misleading. Obama’s policies helped prevent a Great Depression. Since the spring of 2010, payrolls have risen by more than four million. If the do-nothing Republicans in Congress had passed the Administration’s American Jobs Act, which contained more financial help for cash-strapped states that are still laying off teachers and other employees, many more Americans would be working.

In short, the Republicans are full of it. But politically speaking, their argument is a potent one—and Obama’s campaign knows it. As I’ve pointed out before, when an incumbent seeks reëlection, the key to his fate is the trend. In the first three months of the year, Obama could make the case that things were finally turning around, and he deserved another term. His approval ratings improved, and Romney’s argument that he was the only one who could fix the economy looked silly. Now Romney is back in the race.

It isn’t as if the Republican nominee-elect has a credible solution to the jobs crisis. He doesn’t. His fifty-nine point economic plan, which combines drill-drill-drill with tax reform, the repeal of Obamacare, and long-term fiscal retrenchment, would have little or no impact on the unemployment rate. And if he gave into the Republican right and started slashing federal spending straight away, he could well bring on another recession. But when things are bad, challengers are held to a lower standard than incumbents. The “time for a change” argument often resonates more strongly with voters than the incumbent’s critique of his opponent’s plans.

That is the dynamic that leads to changes of government. It isn’t fully in place this year, but one or two more employment reports like this one and it could well be. “Absolutely nothing good to be said about today’s #jobs numbers,” Steve Rattner, Obama’s former auto czar, tweeted this morning.

That’s not strictly true. In a blog post he put up about an hour after the job figures, Alan Krueger, chairman of the Council of Economic Advisers, pointed to the Labor Department’s survey of households, which showed employment rising by four hundred and twenty-two thousand last month—more than six times as much as the figure from the payroll survey.

Economists don’t pay as much attention to the household-survey job figures, because they bounce around a lot and the sample is smaller. But like the payroll number, it’s an official measure of employment, and it might even be accurate. We simply don’t know. (The payroll survey should also come with a health warning attached. Its margin of error is a hundred thousand—meaning the actual jobs figure could be anywhere from negative thirty-one thousand to a hundred and sixty-nine thousand.)

The household survey also showed that more people are looking for jobs, which is usually a sign of an economy recovering. Last month, the labor force increased by six hundred and forty-two thousand, and the participation rate—the proportion of able-bodied adults who are working or looking for work—rose from 63.6 per cent to 63.8 per cent. Is this finally some good news for Obama? Politically, it isn’t. Some of the people who rejoined the labor force last month couldn’t find jobs. Hence, the number of people officially recorded as out-of-work rose by two hundred and twenty thousand, and this caused the headline unemployment rate to tick up by a tenth of a per cent.

In short, the employment report is sticking it to Obama from both sides. The payroll survey shows stagnant job growth, the stock market tumbles, and all hell breaks loose. The household survey shows many more jobs being created but a rising unemployment rate, and that is what grabs the headlines.